Reliance banks on cash-and-carry format

From just one store in March this year, Reliance Market has 12 outlets now. — K.V. Poornachandra Kumar

Set to open 8 new stores by June

Mumbai, Dec. 12:

Reliance Retail has sensed a big opportunity in the cash-and-carry segment. From just one store in March this year, Reliance Market (the wholesale format) has 12 outlets now and hopes to add eight more by June.

The aggressive expansion is aimed at capturing a significant share of the $300-billion wholesale market in India. Typically, cash-and-carry outlets cater to small retailers or kirana stores, hotels, restaurants, caterers and other bulk buyers. End consumers can’t buy from these outlets. “Reliance Retail has already bought real estate for eight more stores in the next six months to tap the tremendous opportunity in this space,” said a person familiar with the plans.

Germany’s Metro Cash and Carry opened its first store in India in 2003, and now has a total of 16 outlets. American retail major Walmart has 20 outlets after starting off in 2007. Reliance Retail opened its first outlet in Ahmedabad in September 2011 and has fine-tuned its business strategies based on the performance of this outlet.

Reliance Retail’s optimism for cash-and-carry format is not without any reason. Retailers in small towns and even villages travel to the nearest city centre or district for procuring goods, usually from multiple suppliers. This increases costs for them. From Reliance Market, they can procure goods ranging from fresh fruits and vegetables, detergents and toiletries to staples, groceries, stationery, footwear and electronics and IT products. Many of these items are sourced locally from producers and manufacturers. This reduction in fragmented supply chain helps kirana store owners and others in bringing down their costs by up to 25 per cent.

Cash-and-carry stores have low operating expenses compared to hypermarkets or supermarkets as they are not located in highly populated areas where real estate and manpower costs could be high. Most Reliance Market outlets are on the outskirts of cities where there is a good base of kirana owners and other buyers. “Also, since shelving and stocking is meant for B2B customers, the cost of fit-outs and maintenance is low,” says Arvind Singhal, Chairman, Technopak Advisors.

Gaurav Gupta, Senior Director at Deloitte India, says cash-and-carry is an attractive proposition as it does away with the need for a player to make investments in reaching to the end consumer. “That means huge savings in cost and time in creating last mile connectivity,” he says.

Also, such formats are more efficient as they carry fast-moving items, depending on the local demand. “Packs are large and transaction values are high. Low capital expenditure and operating costs coupled with fast inventory turnover lead to higher returns on capital,” says Singhal.

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